This study examines whether nonhomothetic preferences underlie the "missing trade" problem associated with factor content of trade models. We first find that per capita income goes a long way in explaining differences in goods consumption across countries. We then find a striking correlation between the factor content of consumption and per capita income, and show that accounting for this is a key part of resolving the case of the missing trade. However, nonhomothetic preferences over broad categories of expenditure play only a small role in this phenomenon. Rather, we find that as income grows, spending is directed towards the relatively capital-intensive version of a given good. Since recent research shows that capital intensity is correlated with quality ( Schott, 2004 ), our results suggest that within-product quality differences are likely important for explaining the factor content of trade, whereas nonhomothetic preferences over broad categories of expenditure are much less so. Copyright � 2010 Blackwell Publishing Ltd.

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